Question

Terps Company received a promissory note from a customer on October 1, 2019. The principal amount of the note is $25,000; the terms are 8 months and a 6% annual interest. Assuming the accounting period ends on December 31, determine the interest revenue recorded by the company for the year ending on December 31, 2020

Answer 1

The answer is $3,000

Step-by-step explanation:

Principal is $25,000

Tenor is 8 months

Annual interest is 6%

So the interest rate for 8 months is 4%

Therefore the monthly interest income is 4% x $25,000

=$1,000.

October 1, 2019 through December 31, 2019 is 3 months

The interest revenue that will be recorded for the year 2019 is $1,000 x 3 months

=$3,000